Coin Center Sues to Stop Feds' Plan to Spy on Crypto Wallets

The nonprofit Coin Center filed suit on Friday against the Internal Revenue Service and U.S. Treasury Department, arguing that a tentative plan to spy on Americans who use cryptocurrency would violate their constitutional right to privacy.

The suit is a response to a reporting provision contained in infrastructure legislation that President Joe Biden signed into law in November. The provision would require Americans to begin telling the feds whenever they move more than $10,000 in cryptocurrency to a different wallet beginning on Jan. 1, 2023. If they receive the money from someone else, they would need to report the sender’s personal information — including their Social Security number and date of birth.

“The reporting mandate would force Americans using cryptocurrency to share intrusive details about themselves, both with each other and with the federal government,” the Washington, D.C.-based Coin Center noted in its lawsuit, which was filed in the U.S. District Court for the Eastern District of Kentucky. “Under the terms of the mandate, everyday senders and receivers of cryptocurrency would be forced to reveal their names, Social Security numbers, home addresses and other personal identifying information.”

The lawsuit argued that such a requirement violated the Fourth Amendment’s protection against unreasonable searches and seizures — and pointed out that it would allow the feds to identify what Americans were spending their money on, even if their transactions were unrelated to events that triggered the reporting requirement.

“If … a third party learns the real name of a person using a cryptocurrency address, then she can use the public ledger as a comprehensive database of all transactions sent to or received by that person,” Coin Center’s attorneys wrote in the suit. “The reports would give the government an unprecedented level of detail about transactions within a realm where users have taken a series of steps to protect their transactional privacy.”

The group is asking the court to issue an injunction that would stop the law from taking effect.

Coin Center Executive Director Jerry Brito and Research Director Peter Van Valkenburgh cited examples of who would be affected by the new reporting requirement in a statement that accompanied the legal filing, writing, “Are you an artist who sells a painting or an NFT for $15K? You have to file a form informing the government on your client’s personal information. Are you a nonprofit who receives anonymous donations for your humanitarian work? No longer. You may have to give the government a list of your donors.”

“This is an affront to our civil liberties that must be challenged,” the duo added.

The provision was added as a stealth amendment to congressional Democrats’ Infrastructure Investment and Jobs Act last year, ostensibly as a measure needed to fund the $1.2 trillion plan. The same legislation also included language that would change the definition of a “broker” to include operations that rely on decentralized software and protocols — such as mining and staking.

Brokers are required to issue annual forms showing tax information for their clients, but software and protocols are largely incapable of issuing those forms (and they cannot be prosecuted for failing to comply). Those issues have led to questions about how the new statutes will be enforced.

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